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THE CALIFORNIA ENERGY CRISIS

PG&E Gave Bonuses Prior to Bankruptcy

Power crisis: Before its filing, the utility also had $2.5 billion on hand and had restarted services suspended earlier because of shaky finances.

April 08, 2001|TIM REITERMAN | TIMES STAFF WRITER

SAN FRANCISCO — In the days approaching Pacific Gas & Electric Co.'s bankruptcy filing, the debt-ridden utility had more than $2.5 billion in cash on hand and was restarting services suspended earlier this year because of its shaky finances.

Then, the day before the filing, the utility awarded 6,000 managers and other employees more than $50 million in annual bonuses and announced that long-delayed merit increases had kicked in for the same workers.

The timing of the bonus payments in particular raised an outcry from consumer groups and state officials.

"Management is suffering from two afflictions: Denial and greed," Gov. Gray Davis said in a statement.

"It does not look good," said state Senate President Pro Tem John Burton. "They [already] have a business and a P.R. problem."

The bonuses and raises were announced in an e-mail sent Thursday by Chief Executive Robert Glynn to employees. The payments cover about a third of the company's 19,000 workers, ranging from nonunion clerical staff to all but the very top management.

On Friday, hours after PG&E had filed for reorganization of its debts under Chapter 11 bankruptcy laws, a San Francisco judge approved the company's overall employee compensation plan. But PG&E officials said the ruling did not specifically cover the bonuses or merit raises.

Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, said the bonuses should not be allowed.

"Talk about manipulating the corporate finances to benefit management prior to bankruptcy," he said. "It is the kind of arrogant mismanagement that is responsible for the ruin of this company."

Richard Levin, a Los Angeles bankruptcy attorney, said such payments to employees are not unusual, especially after the filing of bankruptcy.

"A company trying to reorganize has to take pretty strong action to keep employees," he said. "If they did not do it, who is going to keep the electricity flowing?"

PG&E, the state's largest utility, declared in its filing for bankruptcy protection that it is more than $9 billion in debt--several times more than cash on hand--and was getting nowhere in negotiations with the governor for state purchase of its power lines and other assets. The filing, which includes a list of creditors, allows the company to continue to operate while it reorganizes its financial affairs. A judge, working under federal bankruptcy law, will determine who will be paid and in what order. The first hearing is scheduled for Monday.

Company officials defended the payments, which were reported in Saturday's San Francisco Chronicle, and fired back at Davis. "Instead of focusing all his attention on solving the state's yearlong and ever-worsening energy crisis, the governor has launched a campaign-style attack on our company," PG&E said in a statement Saturday.

The payments, officials said, are awarded each year to employees who meet the company's performance goals and objectives. "They are smaller this year because of the larger financial crisis the company is going through but, it is safe to say, more deserved this year than in years past because of the challenges facing our employees this year," said PG&E spokesman John Nelson.

The payments came after the company began reversing some of the cost-cutting measures imposed early this year after its finances worsened, PG&E officials said.

PUC Orders End to Some Cutbacks

Among other things, PG&E had suspended projects involving the underground placement of power lines, prompting cities and residents to protest to state regulators. The company also eliminated about 325 jobs earlier this year and was planning layoffs of almost 700 more. But the California Public Utilities Commission last month blocked the layoffs and ordered the company to rescind any cutbacks affecting service.

Company officials said that, thanks in part to a tax refund of $1.1 billion, the company now has about $2.5 billion to $2.8 billion on hand.

"We are now in a position to start relaxing some of those cash-conservation measures," Nelson said Saturday. "About a week ago we started doing undergrounding again and [performing] new installations of electrical service" in business parks and elsewhere.

"This compensation package was one of those measures reinstated," he said.

Officials said the payments exempted the company's 25 officers, as well as about 12,000 union workers who received raises in January.

They said the total of the bonuses, estimated roughly at more than $50 million, is substantially lower than the $83 million in payments suspended in January when the utility announced cost-cutting measures.

That $83 million included bonuses for employee performance and a bonus based on the company's success.

"As we close the books for 2000, we have determined that we are unable to make [that] portion of the incentive payment due to the negative financial impact of the ongoing California energy crisis," CEO Glynn said in his e-mail.

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